One recent example: Keeley Small Cap Value's largest holding, metallurgical coal maker Alpha Natural Resources (ANR), spun out of Pittston Coal in 2002, is being taken over for $10 billion by Cleveland-Cliffs (CLF). The shares are up 206% this year.

One recent example: Keeley Small Cap Value's largest holding, metallurgical coal maker Alpha Natural Resources (ANR), spun out of Pittston Coal in 2002, is being taken over for $10 billion by Cleveland-Cliffs (CLF). The shares are up 206% this year.

One area of recent interest to Keeley and his team is savings-and-loan and insurance conversions, since they allow the Small Cap Value Fund to buy a new stock without an underwriter. They bought Home Federal Bancorp (HOME), a Nampa, Idaho-based former mutual savings-and-loan that just completed a conversion in December 2007 at $10. "The proceeds of the conversion give Home an equity-to-assets ratio over 27%, among the highest in the country," according to Zahorik, who doesn't rule out that the company will be acquired at two times book value, or 23.50 per share, after three years. It recently was at 10.80. "While many community banks and thrifts are thinly capitalized, Home is heavily overcapitalized, yet still trades at just 87% of tangible book," Zahorik says. "In late December, Home will be permitted to deploy capital in the form of stock buybacks. Given the high level of excess capital, these buybacks could be substantial." Earnings estimates are 24 cents a share for this fiscal year, and 26 cents a share in 2009.

In April, Keeley picked up Batesville, Ind.-based Hill- Rom Holdings (HRC), formerly Hillenbrand Industries, in the mid-20s following a spinoff and renaming. Hill-Rom manufactures and provides technologies and related services for the health-care industry, including patient-support systems like multipurpose beds that can also be used as chairs and as transportation. Earnings estimates are $1.25 a share for this fiscal year and $1.47 for the next.

Some spinoffs that undergo additional restructuring are also are of interest to Keeley. The firm bought Louisville, Ky.-based PharMerica (PMC), which was created in 2007 from the merger of two leading institutional pharmacy businesses -- PharMerica Long-Term Care and Kindred Pharmacy Services. PharMerica Long-Term was spun out from AmerisourceBergen (ABC), a drug wholesaler. It then was merged with Kindred. The new company operates 115 institutional pharmacies that service 340,000 beds. "So in addition to the benefits of a spinoff and restructuring, you have a demographic play as the population ages," says health-care specialist Woodyatt. Small Cap Value bought it in April at around 15. It has since risen to about 24. The Street estimates earnings of 78 cents a share this fiscal year and $1.04 next year.

The firm acquired shares of Houston-based Petrohawk Energy (HK), an independent oil and natural-gas company, via Petrohawk's merger with KCS Energy, a Keeley holding. The new company found significant natural gas in the Haynesville Shale along the U.S. Gulf Coast, which may hold twice the reserves of the entire country. "This is an example of higher energy prices and new technology producing a significant supply response," Kindig says, adding that the potential is so huge that nobody has a good estimate on what will come onstream in the next five years. Keeley bought KCS at about 12 in 2003 and continued to add to the position after the merger. Petrohawk, which has been under significant selling pressure in the past three weeks as the price of natural gas has fallen along with the price of oil, was recently near 31. Kindig puts earnings at $1.28 a share this year and at $2.15 in '09, which is considerably higher than the Street's estimates.

The firm acquired shares of Houston-based Petrohawk Energy (HK), an independent oil and natural-gas company, via Petrohawk's merger with KCS Energy, a Keeley holding. The new company found significant natural gas in the Haynesville Shale along the U.S. Gulf Coast, which may hold twice the reserves of the entire country. "This is an example of higher energy prices and new technology producing a significant supply response," Kindig says, adding that the potential is so huge that nobody has a good estimate on what will come onstream in the next five years. Keeley bought KCS at about 12 in 2003 and continued to add to the position after the merger. Petrohawk, which has been under significant selling pressure in the past three weeks as the price of natural gas has fallen along with the price of oil, was recently near 31. Kindig puts earnings at $1.28 a share this year and at $2.15 in '09, which is considerably higher than the Street's estimates.

One favorite is Tampa, Fla.-based Walter Industries (WLT), which has a booming coal business. It is also an on-the-lot home builder, which used to finance buyers and has a low loan-delinquency rate. Keeley was buying Walter at 21 in 2007, and the shares recently traded above 90. Earnings estimates are $5.58 a share for this fiscal year, jumping to $15.44 for next year because of high metallurgical-coal prices and the prospect of a new mine opening.